The Southeast Michigan Council of Governments (SEMCOG) has provided a more compelling — though also flawed — argument for land use restrictions. In June 1997, SEMCOG released a report arguing that current development patterns were inefficient. The study, Fiscal Impacts of Alternative Land Development Patterns in Michigan,[68] proposed "compact development" as an alternative to current trends.

The SEMCOG researchers identified 18 communities for detailed analysis based on projections for population and employment growth during the 25-year period between 1995 and 2020. The communities ranged in size from 65,978 (Canton Township in Wayne County) to 2,262 (Montague in Muskegon County).[69]

Using an approach pioneered by researchers at Rutgers University, the SEMCOG study asked a simple question: How would infrastructure and land costs be affected by redirecting housing units onto smaller lots and clustering them closer together? The study’s authors hypothesized that this "compact development" pattern — putting houses closer together on smaller lots near cities — could save money and land.

They reasoned that houses closer together should reduce infrastructure costs since shorter roads, sewer lines, and water lines would be built. In addition, less land would be used for homes, leaving a larger share for forest and open space. More controversially, the authors argued that housing costs would actually fall under a compact development scheme because smaller lots would reduce land and infrastructure costs.

Based on its analysis of the 18 communities, the SEMCOG study concluded that compact development could produce many benefits by

Reducing development in peripheral areas by 50%;

"Saving" 12.7% of land from development;

"Saving" 13.2% of farmland;

"Saving" 11.9% of fragile environmental lands;

Reducing local road costs by 11.9%;

Reducing capital costs for water services by 15.1% and sewer services by 18.1%;

At first glance, these results seem significant, but put into the proper context, they hardly justify the draconian restrictions on consumer housing choices that state and local planning authorities would have to implement to carry out the plan.

Let’s take a closer look. Compact development’s effects on overall land consumption are relatively small: It only slows the rate of increase of land development; it does not stop it. Given current trends, 64,373 acres of land would be consumed for residential and commercial purposes by the year 2020 in the 18 study communities.[70] Under compact development, 56,209 acres would be consumed. Thus, the study claims land consumption will be 12.7% lower under the "more efficient" compact development scenario.

This reduction, however, occurs over a 25-year period. Thus, the rate of land consumption falls by about 0.5% per year, or 5% per decade. If similar savings were achieved statewide, this would slow the pace of urbanization from 12.4% to 11.8% per decade (assuming past trends continue)[71]. Agricultural land loss would be reduced from 2.8% per decade to 2.6% per decade (see Chart 11).

The second problem with SEMCOG’s analysis is that infrastructure cost savings may not materialize. The authors used a simple view of spending and potential savings. They presume costs such as road extensions will remain the same over the 25-year period and other factors (e.g., local capacity limitations or changes in technology) will not affect costs. In some cases, however, large lot development could reduce infrastructure costs by using septic systems rather than expensive extensions of municipal sewer lines.

Third, real housing cost savings are also unlikely to materialize under SEMCOG’s compact development model. The authors acknowledged that most of the work by independent scholars shows that growth controls increase housing prices.[72] Such controls often limit the number of houses while demand for housing continues to rise, thus increasing the price of housing. On the other hand, the authors of the SEMCOG study argue that if the number of units is allowed to increase, or at least stay the same, housing price inflation will not occur. More importantly, they predict housing prices will fall because infrastructure and land costs will be lower.

This reasoning is flawed for at least two reasons. First, housing costs will be determined in the real estate market by consumers and developers. Construction costs are not the only factor in determining housing prices. While infrastructure costs may fall, these savings will not necessarily be passed on to consumers if the demand for housing increases, particularly in high-growth areas. Where demand is high, developers might experience higher profit margins (therefore encouraging more development in those areas). Thus, if the SEMCOG study’s authors are correct and compact development is preferred by consumers over larger lot housing development, housing prices for these units will be higher.

More importantly, the authors assume that the amount of land is not important to a consumer’s decision to buy a house.[73] The authors view larger lots as a pure cost with no benefits. In essence, in their view, families do not care whether they live in a house on a one-eighth acre lot or a house on a half-acre lot. While the authors kept the number of housing units the same, the quality of the housing unit changed significantly when the lot size was reduced. After all, current development trends in Michigan show that most families prefer a single family home on a larger lot than would be permitted under a compact development pattern. Compact development has the potential of significantly reducing the quality of life and standard of living for Michigan families by forcing them to pay the same or more for lower-quality housing.

The last problem with the SEMCOG study is that it reduces community development to an exercise in reducing infrastructure costs. Infrastructure costs are one component of housing and the quality of community, but not the only or even primary component. If families are willing to pay the full costs of their home — including higher infrastructure costs — the market accommodates this diversity. Compact development reduces consumers’ choices in housing by limiting larger lot homes from the real estate market. "Many households," note urban planners Alan Altshuler and Jose A. Gomez-Ibanez, "would be willing to pay the modest increases in road and utility costs to gain the larger private backyards and more open space of the low-density neighborhood."[74]